14 May 2015 |

There were a number of changes announced in the 2015 federal budget that will affect our clients including small business owners. As is usually the case there are different start dates for each of the measures announced.

The tax cuts and other incentives included in the budget for businesses are only available to those that qualify as a Small Business Entity. A SBE is a business that has a turnover of less than $2 million.

Measures applying now

Increased limit for instant write-off the small business asset purchases
Reversing a policy decision taken soon after winning the election, when the Abbott government reduced the instant tax deduction for assets costing up to $6500 down to $1000, the instant write-off limit will be increased to $20,000.  The instant deduction will apply to assets purchased from budget night until June 30, 2017.

Assets costing more than $20,000 can be combined in a new asset pool and, after applying the small business depreciation rates of 15 per cent in the first year and 30 per cent in the following year, if their written down value decreases to less than $20,000 up to June 30, 2017 a full deduction can be claimed then.

To gain a benefit if more than one asset costing more than $20,000 is pooled at least one asset of more than $19,999 will need to be purchased before June 30, 2015 to ensure that a deduction can be claimed for the written down value in the 2017 financial year.

This immediate write off for an asset pool with a value of less than $20,000 would also appear to apply to existing asset pools. This should mean businesses with existing asset pools with a written down value of less than $20,000 can claim a full tax deduction for that pool for the 2015 financial year.

Measures applying from July 1, 2015

Reductions in tax payable for small business owners
Recognising that less than 74% of small businesses are operated by companies, in addition to a 1.5 per cent tax cut for qualifying companies, there will also be a reduction in tax payable by individuals that receive business income.

This means if you own and operate a business as a sole operator, partnership, discretionary family trust, or unit trust, the tax payable on your business income will be reduced by a discount of 5 per cent and will apply as a tax offset.

The discount is limited to a maximum of $1000 per individual per year. This limit on the discount effectively means that once a person earns more than $86,630 in business income, at the marginal tax rates that currently apply, no further discount is available.

The reduction in the company tax rate and the discount for individuals will apply from July 1, 2015. The government has stated that the reduction in company tax rate will reduce Pay As You Go instalments tax that will be payable after July 1, 2015, but the discount will also hopefully apply when calculating PAYG instalments for individuals.

Change to car deduction rules
Currently businesses and employees have three choices for claiming motor vehicle expenses if they don’t keep a logbook. They are:

  • the 12% of original value method,
  • the one third actual expenses method, and
  • the cents per kilometre method.

Under this last method there are three different rates that vary depending on the size of the engine of the car. These are 65 cents for a 1600 cc engine, 76 cents for cars with engines between 1601 and 2600 cc, and 77 cents for cars with engines bigger than 2600cc.

From the 2016 year onwards only one method will be allowable being the cents per kilometre method. In addition only one rate of 66 cents per kilometre will apply.

Immediate tax deduction for business setup expenses
Currently costs incurred in setting up a business, such as legal fees and company formation costs, must be written off over a five-year period. Small businesses will be able to claim a full tax deduction for these costs paid after July 1, 2015.

Change to terminal medical condition of release for superannuation
From July 1, 2015 people can access their superannuation if they have a terminal medical condition, and two registered medical practitioners certify that they have less than two years to live. Under the current law superannuation can only be accessed if a person has less than one year to live

Increase in the value of penalty units.
When Commonwealth laws are breached, including those rules applying to income tax and superannuation, depending on the severity of the breach a fine is imposed in penalty units. The current maximum penalty is 2000 units.

From July 31, 2015 the value of penalty units will increase from $170-$180.

Measures applying April 1, 2016

Extension of FBT exemption for small businesses
Currently there is an exemption from fringe benefits tax for all businesses that supply one portable electronic device to employees for business purposes. For qualifying small businesses employees can be provided with more than one work-related portable electronic device.

Measures applying July 1 2016

Rollover relief when a small business owner changes the business entity
When a small business owner changes the type of entity they use to own and operate the business, such as operating as either a sole trader or a partnership and changing to a company or a family trust, they will receive rollover relief and no capital gains tax will be payable at that time.

Currently this roll over relief only applies when owners change to a company owning and operating their business. Hopefully this roll over relief will not be compulsory as transferring a business to a new entity, before the turn over the limit of $2 million is exceeded, is a way for people to access the small business capital gains tax exemptions.

Accelerated depreciation for farmers
From July 1, 2016 primary producers can claim an immediate tax deduction for amounts paid related to new fencing and water storage facilities. In addition amounts spent on new fodder storage assets used to store grain and other animal feed will be written off over three years.

 Measures applying from January 1, 2017

Increase in the asset test thresholds for the maximum aged pension
A change will be introduced to the asset test thresholds at which point an individual or a couple receive the maximum aged pension.

The current asset test thresholds for homeowners to receive the maximum age pension are $202,000 for singles and $286,500 for couples. These thresholds would increase from January 1, 2017 to $250,000 for singles and $375,000 for couples.

The thresholds for non-homeowners will also increase so that a single person can have assets up to $450,000, and a couple can have up to $575,000, and receive the full aged pension.

Decrease in the assets test threshold for losing the aged pension
Once the lower threshold is exceeded for the maximum age pension entitlement, the age pension is currently reduced by $1.50 per fortnight for every $1000 in excess of the lower threshold.

From January 1, 2017 the reduction in the pension will increase to $3 for every $1000 of assets above the lower threshold. This would result in the aged pension being lost for singles homeowners with assets of more than $547,000, a decrease from the current $770,500, and for couples with assets of more than $823,000 with the current thresholds being $1,151,500.

Anyone that loses the age pension as a result of the decrease in the upper assets threshold will be issued with a Commonwealth seniors health card.

If you need help with how any of the budget changes will affect you please call us on 03 9720 6811.

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